Skillern Law Firm, PLLC

(Minor) Children in Your Estate Planning

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(Minor) Children in Your Estate Planning

Travelers with Baby in StrollerWhen handling people’s estate plans, I am often asked how life insurance, retirement accounts, and other “beneficiary” property should be handled with regards to the young children. More often than not,  people with children want some or all of the proceeds of these accounts to go to their minor children.

For example, if a client has a $100,000 life insurance policy and has a minor child of 5 years old, she would most likely tell me or the insurance agent that she wants her child to be the beneficiary of the life insurance. The questions presented in this situation are:

  1. What happens to the money and any other property when her minor child inherits or receives it?
  2. Is there a better way to handle life insurance proceeds or other property that you want to leave to a child?

To answer the first question presented, let’s look at Oklahoma’s law on minors. Children or minors are legally incapable of holding and managing that property until the reach the age of majority, which, in Oklahoma, is the age 18. While they are still considered minors in Oklahoma, any property or money a minor owns must be managed by another person, such as a guardian or custodian. IMPORTANTLY, for the most part, the financial institutions will require the guardian to go to court and receive Letters of Guardianship  before the institution will release the funds into the guardian’s control. This applies to parents. Therefore, if a grandparent left a minor as a beneficiary of an account, the minor’s parent would have to go through the court process of Guardianship (which can be expensive), before the parent will gain control of the minor’s assets. This is an expensive complication to leaving an asset to a minor child, because court processes comes with attorney fees, accounting fees, filing fees, just to name a few.

In the above scenario, when the child turns 18, he or she can take over the management and control of the property or money. Oklahoma law generally does not require a specific level of financial literacy, planning, or common sense to manage or control your own property. Thus, the young teenager may squander the monies that was given to them very quickly, since they have full control of it once they turn 18. And how many 18 year old teenagers do you know that would know how to handle a lump sum of $100,000 responsibly?

THE GOOD NEWS is that there are other, more responsible approaches to leaving minors an inheritance. Rather than naming your child directly to receive the proceeds of a life insurance policy, or any other beneficiary account, you can set up a revocable or irrevocable trust that has your minor child as a beneficiary. This allows you to provide for appropriate use and management of the property with certain guidelines and control that will not let the minor child to squander their inheritance, and it won’t include any court process or fees. Unlike custodial arrangements discussed above, a trust does not necessarily terminate at age 18 and can continue to provide supervised management of the property into adulthood, including planning for education and other life-events. To read more about trusts, read a previous article by our attorney here.

The Trustee, or the person who manages the trust’s money and property, can also be empowered to use the Trust’s money for the benefit of the child, without the need and cost of court supervision. This can be helpful because it allows you to have more control over the types of expenses you want to provide for your child, including health, education, and general expenses one might occur as a young adult.

Remember, selecting a beneficiary for any type of monetary account is an important decision with potentially far-reaching consequences. There are important legal implications depending on your choice. Selecting a beneficiary is part of your overall estate plan, and the attorney at the Skillern Law Firm, PLLC can help plan for your minor children or grandchildren. Call our office at to speak to our attorney today!

Call for a Free Consultation!

 

Penni Skillern, Esq.

Penni Skillern, Esq.

Know you need an estate plan, but don’t know what you need or where to start? Call our offices today for a FREE CONSULTATION with our Attorney, Penni Skillern, Esq.

Our attorney takes a comprehensive and integrated approach to estate planning. Your estate plan should complete your vision, goals, values, and needs for the future. To learn more about how estate planning can assist you in furthering your goals, contact our office in Tulsa, Oklahoma today at (918) 805-2511.

 

Funding A Revocable Trust

funding trustWhenever an attorney creates a Revocable Living Trust for a client, the trust needs to be funded.  “What does it mean to fund a trust?” is a common question that our attorney at the Skillern Law Firm  gets from clients.  It is a very important step in the estate planning process. To see what a Revocable Living Trust can do for you, read our previous blog post about the types of trusts and their advantages. A trust, if funded correctly, will allow its creator(s) to avoid the probate process. An unfunded or partially funded trust does not allow your assets to avoid probate, because only the assets owned by the trust at your death or payable to the trust at your death avoid the probate process.

There are a few common misconceptions about the trust funding process.

Myth #1 – Since you formed a trust and have a Trust Agreement, the trust is complete and there is nothing else that needs to be done. 

When you sign or form a trust with an estate planning attorney, signing to document is only the first step in the trust-creating process.  The attorney, or the client, needs to make sure ALL of the assets held by the trust-creators (or “trustors”) are put in the trust’ss name, or has the trust as the listed beneficiary of the account. Otherwise, the Trust Agreement is an expensive pile of paper that will not help the creator’s avoid probate. The attorney at the Skillern Law Firm funds all of the trusts she helps create, taking this important step out of the client’s hands.

Myth # 2 – When the trust was created, there was a list of all the property on an Exhibit or Schedule that’s attached to my trust, so that transferred my assets to the trust… right?

Many trusts have an exhibit or schedule of property. This is a helpful document that helps a successor trustee in ascertaining what property they should be managing and accounting for. Updating this exhibit or schedule as the “big-ticket” items change is important so that the information on the exhibit is generally up to date. However, merely putting a description of the property on a schedule or property addendum does not legally transfer the ownership of the property into the trust. That needs to be done outside of these exhibits/schedules, most likely by property deeds and beneficiary designations.

How do you fund a trust?

To fund a trust, the attorney or client needs to file the property deeds with the county its located in, and put the trust as the beneficiary on all accounts.  To fund business interest, you will need to assign closely held business interests to your trust. Like all things in life, there can be tax consequences and benefits to each course of action. You should always seek tax advice prior to making a transfer of property, because once transfers are completed, there is often no undo button for tax purposes.  Whenever our attorney create a trust for a client, she makes sure she funds the trust at creation, but it is up to the client to keep the trust correctly funded after signing.

What are the benefits of a fully funded trust?

The biggest benefit of a correctly and fully funded trust is that it allows your beneficiaries to avoid probate. One more important benefit of a fully funded trust is that it allows for easier management of your property in the event of your incapacity. A truse can also can save on administration costs upon your death or incapacity, since your successor trustee and beneficiaries will not have to spend as much time and money locating your property.

Having a revocable trust in your estate planning portfolio is important for those who want to avoid probate and keep their estate administration as easy as possible. Funding your revocable trust is an absolute necessity if you want the benefits of avoiding probate and having management of your property in the event of your incapacity. Funding your revocable trust is a necessity that should be completed and worked on along with the creation of your trust. Call the Skillern Law Firm today to get your estate planning done today!

Oklahoma’s Simplified Probate

probateIf you do not have a Revocable Living Trust, your estate will  need to be probated or be small enough for a simple affidavit. Probate is the legal process required for estate administration and asset distribution.  To read more specifically about what probate is, read our previous post “what is probate.”

One important thing about about probate is that is is time-consuming and typically expensive. There are court costs, publishing fees, and of course attorney fees. For this reason many people are able to shrink their probate estate using simple ways to avoid probate like beneficiary designations or a revocable living trust. A trust allows you to put all your assets into a trust, you then name a successor trustee to take over when you are incapacitated or pass, and your named beneficiaries who would receive distributions without having to go through court. It’s usually very simple and clean.

Simplified Probate

Regular probate is most likely going to be necessary for most people with a normal sized estate. However,  those who have a smaller amount of assets may be able to pass along property outside of probate altogether or through the utilization of a simplified probate procedure. In Oklahoma,  if the estate is worth less than $20,000,  a simple affidavit can be used to claim the estate after a ten day waiting period.

For estates larger than $20,000 and smaller than $150,000, Oklahoma allows for a “Simplified  Probate.” The executor or executrix can contact the probate court to request simplified probate if the estate that he or she is administering is valued at less than $150,000 ($175,000 beginning November 1, 2013). This includes all personal property as well as other assets. The benefits are that it is quicker than normal probate and the attorney fees will be less.

Whether your estate is too large for simplified probate or small enough, the best way to make sure your affairs are in order is to contact a qualified estate planning attorney. The attorney of the Skillern Law Firm can help you plan out your estate so your heirs are taken care of in the best and efficient manner possible. Call our office today!

Exit Strategies for Small Businesses

business partnershipBecoming a small business owner is a big decision. People, for the most part, begin working on operating agreements and articles of incorporation, and then move on to working on the business to make it successful and profitable. Few, if any, ever work on their exit strategy for their business from its inception. Most only start to worry and think about their business exist strategy before its too late.

The reason why you should consider this early on is because you may need to plan and act differently depending on how you intend to proceed in the future. For example, if you desire the business to remain in the family after you retire or pass away, you will need to plan differently than if you intended to sell the business to the highest bidder to finance your retirement.

There are also different planning needed if the business is an “owner-dependent businesses.”  Those include professional practices like accountants and/or doctors, contractors, and others. These individuals are faced with another type of situation because their businesses may not be financially viable after they decide to stop working, so special planning is needed in these situations.

Another consideration is if the business is a partnership. If you are a partner in a small business,  you and your partner(s) must work together to devise a strategy that works for all the partners, and this often involves the execution of a buy-sell agreement.

Business planning is an important step in business formation, and seeking out legal help to make sure your are prepared to sell or pass on your business if the worst happens is very important. It is not as easy as simply stepping away when you decide to retire when you own a small business. Every situation is special and unique, and this is why personalized planning with the benefit of expert guidance is recommended.

To be sure that you are working within an informed framework that leads to the ideal exit, take action right now to set up an appointment to speak with an experienced and knowledgeable attorney who specializes in small business planning.

The Importance of an Operating Agreement

documentsWHY DOES EVERY LLC NEEDS AN OPERATING AGREEMENT?

The Operating Agreement for a LLC is the essential document that is referred to when issues and lawsuits concerning the LLC need to be resolved. The Operating Agreement is by far the most important and essential document for your LLC, and when you form an LLC, you should immediately look into getting one drafted or created by a qualified attorney. In the LLC Agreement document, the members will be provided with a clear set of rules that all members have agreed upon, greatly reducing the likelihood of disagreement between members in the future. It is very important that you create an Operating Agreement for your LLC entity, because without the formality of an agreement, the basic operation of the LLC would be governed by state law, which may not be advantageous to the LLC, it members, or the business it conducts. Each state LLC statute contains basic operating rules for LLCs, including Oklahoma, and those statutes will govern your business unless your Operating Agreement states otherwise (these are called “default rules.”). An Operating Agreement is personalized to your business and members’ needs, wants, and desires. The Oklahoma statutes were drafted by legislatures, and the best way to avoid having your business run in a way that you do not agree with is to have an Operating Agreement.

Do not let the State tell you how to run your LLC

Oklahoma LLC statutes, for example, have default rules that govern how certain business decisions should be made, such as how the LLC will be managed, rules for holding meetings and taking votes, rules for the sale of the LLC, how profits and losses should be allocated, amending the Operating Agreement, admitting a new member, and dissolving the LLC. Do you want these types of decisions to be decided by Oklahoma legislatures? Defaulting to the Oklahoma state law for important LLC decisions could jeopardize your business as well as make things more complicated for you and you business partners, since you will have to look up Oklahoma statues every time you want to do something inside your business structure or management. If you don’t want the state to tell you how to run your LLC, it’s important that you have a well drafted LLC Operating Agreement that is personalized to fit your needs. By having an Operating Agreement in place, you can decide the rules that will govern your LLC’s inner workings, rather than having to follow state default rules that may or may not be right for your LLC.

One more short note is that an Operating Agreement is a private document, which the state  nor county does not need to have on file. It is held within your business documents, and only is seen by other parties if there is a lawsuit.

Protect your Limited Liability Status with an Operating Agreement

Even though the LLC Operating Agreement is not required to be filed with the state of Oklahoma, it is unwise to operate an LLC without an LLC Operating Agreement, even if you’re the sole owner of your LLC.

It is extremely important that you create an Operating Agreement to separate yourself as an individual from your LLC, even if you are the sole owner of your LLC. Without the formality of an Operating Agreement, the LLC can closely resemble a sole proprietorship, which does not limit your personal liability for business debts of the LLC. Without an LLC Operating Agreement, the basic operation of the LLC would then be governed by state law, which may not be advantageous to the LLC, it members, or the business it conducts.

The attorney of the Skillern Law Firm, PLLC can draft personalized Operating Agreements for your business needs! Call our office at to speak to our attorney today!

The Importance of Placing Your Timeshares Into A Trust

timeshare postMost, if not all, timeshare owners will have to decide, at some point in their life, who they want to receive their timeshares after they pass away. Most timeshares are real property interests, that are deeded into the owner(s)’s name(s). If a timeshare is held in an individual’s name at death, just like any other piece of real property, it will have to go though probate. Most people, and some estate planning attorneys, do not realize that timeshares are a real property, and forget to put it into their Revocable Trust. The majority of  real estate owners want their children to avoid the cost and delays of Probate proceedings after they die, and to avoid this, a Revocable Trust is one of the easiest and cost-effective ways.

Having a Will does not avoid probate, and especially does not avoid probate when it comes to real estate interests like timeshares. Many people think putting two names on a deed avoids probate. That is not entirely true. It is better to say it delays probate. If two owners, such as husband and wife, own the timeshare as “Joint Tenants” or as “Tenants by the Entirety,” probate is avoided when one owner dies because the co-owner has automatic “rights of survivorship” and becomes the sole owner. This can defer probate, but not avoid it; when the surviving co-owner or sole owner dies, probate will follow.

Some timeshare owners try to avoid probate for the timeshare or other real estate property by conveying the property into one of their children’s names while the owner is still alive.  This can cause major headaches down the road though. First of all, there are gift-taxes associated with doing this. Also, if the child goes bankrupt, gets a divorce, or is sued, the timeshare or other real estate interest is included in their estate for these proceedings.

Not only does the timeshare or other real estate interest get included in those proceedings, but the original owner has lost full control of the timeshare. If the owner and their children disagree, they cannot act alone as they once were able to. The timeshare owner will need their child(ren)’s approval for all actions in relation to that timeshare. They could no longer sell, convey, change, or do anything without the child’s signature.

Our attorney encourages her client’s to use a Revocable Living Trust for estate planning purposes, probate avoidance and/or tax benefits. The problems of adding adult children on title to the timeshare are avoided with a trust. To read more about the benefits of a Trust, please read our previous post Living, Revocable, and Irrevocable. Let’s talk trusts.

If you have already created a trust, you need to make sure that you transfer your timeshare and other real property into the trust by way of properly prepared and recorded conveyance documents. Please feel free to call our office today and set an appointment to make sure your trust is funded correctly. If you do not have a trust but are interested in finding out if you need one, call our office today for a free consultation!

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